New Jersey labor unions are calling for the state's pension fund to scale back its alternative investments in order to reduce fees paid to Wall Street firms.
The New Jersey State AFL-CIO and its affiliated public employee unions presented a plan on March 23 to the State Investment Council that would reallocate hedge fund money into a 60/40 mix of publicly traded U.S. stocks and bonds. New Jersey AFL-CIP President Charles Wowkanech said that for the 2015 fiscal year, 36% of New Jersey's pension fund portfolio was invested in alternatives such as hedge funds and private equity compared to the national average of 25%. Wowkanech noted that these alternative investments cost the Garden State $701 million in fees and bonuses in 2015 and $600 million the previous year.
"The performance of the alternative investments does not justify their outrageous cost," said Wowkanech in a statement. "Approximately 800,000 active and retired public workers have contributed faithfully to the pension system and have made financial calculations for retirement based on receiving the pension they earned. Let's stop making Wall Street millionaires into Wall Street billionaires and return to a responsible, traditional allocation of stocks and bonds."
The proposal was crafted by Focus Investment Bank Managing Director Jeff Hooke, a consultant to the New Jersey AFL-CIP and the New Jersey Public Pension Coalition. Christopher McDonough, director for the New Jersey Division of Investment, criticized Hooke's analysis in a written statement since it relies largely on comparing returns of the S&P 500 during the last five years rather than the future.
"The analysis is entirely backwards looking and focused over a relatively short period of time," said McDonough. "There is no acknowledgement or consideration of current market conditions."
Standard & Poor's revised its outlook on New Jersey debt from stable to negative on March 22 citing weakened pension funding levels and lower than-assumed rates of return. The state's retirement system is only 48.6% funded, according to a preliminary offering statement just before the state issued $131 million in general obligation bonds on March 23.
New Jersey has an A credit rating from S&P, Fitch Ratings and Kroll Bond Ratings Agency. Moody's rates New Jersey bonds at A2 with a negative outlook.
